Duty Free Booze Cruise Looks Set to Return

It could happen in March 2019 when the UK leaves the customs union. Or it could be two or three years later if the proposed transitionary period is adopted. Nobody knows until it is settled at the Brexit talks. But the return of duty-free shopping on travel to and from the UK appears to be only a matter of time. After two decades docked in port, the booze cruise is set for a comeback.

The abolition of intra-European Union duty free on July 1st, 1999, was a landmark for the single market. It was one of those tangible moments that punctured the pall of Brussels bureaucracy for citizens, reaching into their everyday lives. No more cheap Superkings on the ferry back from Holyhead.

The abolition was originally pencilled in for 1993, when the single market was established, but European governments gave duty free a six-year reprieve after howls of protest from airports and airlines, ferry operators and the trade unions whose members staffed their duty-free shops.

Intra-EU duty free was an estimated €5 billion market back then, when the bloc had just 15 members. In the current age of high-frequency, low-cost air travel, who knows what the pot might reach this time on travel in and out of Britain?

Ireland-UK air passenger traffic is now approaching 12.8 million annually, with another 2.2 million on ferries. For Irish and British travel companies, that’s a new, 15 million-strong retail market that will soon be ripe for tapping.

But when? As soon as possible, if the industry gets its way.

‘Potential benefit’
Kevin Toland, the outgoing chief executive of airport operator DAA, told an Oireachtas committee in June that duty free on UK flights should commence “immediately” upon Brexit in 2019, “regardless of any transitional arrangements”.
The DAA said this week that, overall, “Brexit is a negative” but the potential reintroduction of duty free is “clearly a potential benefit” for Dublin and Cork airports.

“The exact relationship between the UK and the European Union post Brexit still remains unclear, but our hope would be that duty-free sales on travel between EU states and the UK would resume as soon as the UK leaves the EU rather than having to wait for the end of any transitional period,” it said.

The UK Chamber of Shipping, whose members include Irish Ferries, P&O and Stena, also wants the British government to push for the “automatic” reintroduction of duty free in 2019. Politicians on both sides have so far remained coy.

Kenny Jacobs, Ryanair’s chief marketing officer, says it is too early to speculate on the reintroduction of duty free on its flights to and from the UK. But the airline, ever alert for opportunities to boost ancillary revenues, has a plan.
“We have contingency plans in place for all eventualities,” Jacobs said.
For Irish travellers to the UK, a cursory examination indicates that the potential savings on alcohol and cigarettes – the most common duty-free fare – will be significant: up to 60 per cent on cigarettes and more on many spirits.

But given the fact that not even the most senior Brexit negotiators in London and Brussels have a clue what it will look like, we must make a few assumptions.

Let’s assume that, post Brexit, duty free returns at the pre-1999 allowances, which still exist for travel to all areas outside the EU. This means passengers returning to Ireland from the UK should each be able to bring in 200 cigarettes or 50 cigars, one litre of spirts, four litres of wine, 16 litres of beer, and €430 worth of other goods.

Duty free must be carried across a customs border under the rules. So Irish passengers flying to Britain from Dublin, for example, will not be able to use the airport’s intra-EU “shop and collect” service, which allows them buy goods on the way out and pick up on the way home. Irish shoppers will have to buy their inbound duty free aboard the ferry or aircraft home, or airside in a British airport.

Savings
World Duty Free is the biggest UK operator, operating at airports such as Heathrow. This week, it was advertising duty-free one-litre bottles of Jameson whiskey for £15.89 (€17.40). The same bottle was this week listed in Tesco Ireland for €36, and €47 in SuperValu, a saving of up to 62 per cent.
A one-litre bottle of Bombay Sapphire gin in Heathrow’s duty free currently costs €23.47. In Tesco Ireland, the same gin is priced at €42.85 per litre (based upon the €29.99 cost of a 70cl bottle), or 82 per cent more expensive.

One litre of Absolut Elyx top-shelf vodka is €51.56 at World of Duty Free in Heathrow, but currently €64 in SuperValu for 70cl (€91.42 a litre). That is a saving of 43 per cent on the Irish price. Another Cosmopolitan, please!

World of Duty Free doesn’t list cigarette prices online, but British Airways lists 200 Benson & Hedges on its “high-life” shop (where you purchase online and collect on the aircraft) for £41 (€45.04). It would cost €115 to buy 200 B&H in an Irish shop, a saving (for your wallet, if not your blackened lungs) of 60 per cent.Duty free means no VAT, customs or excise taxes. As excise is a volume-based tax, regardless of the product’s value, its effect is more pronounced on cheaper items. For example, excise adds the exact same cash cost to an €8 bottle of plonk as a €1,000 of the finest Bordeaux, but proportionally more.

Therefore, the savings can be less stark when buying high-end wines on duty free, and sometimes there is no saving at all. A bottle of 2011 Chateau Lynch-Bages, a fine Pauillac, is £165 (€180) at World of Duty Free in the UK. You can pick up the exact same wine in Le Caveau in Kilkenny for €119.

But overall, Irish travellers to the UK are in line for cheaper prices on booze and drink on the way home. The alcohol retail industry in Ireland is worried about the impact of the reintroduction of duty free on sales here, especially at peak times. The manufacturing industry should be broadly unaffected.
“It will be quite damaging at key holiday periods, such as Christmas,” said Evelyn Jones, public affairs director of off-licence lobby group Noffla and the owner of the Vintry in Rathgar, south Dublin.
“Lots of Irish emigrants would be travelling home at Christmas, and you can be sure they’d use their allowance to bring a bottle. It will have a particular impact on premium spirits.”
Noffla is signed up to the wider drink industry’s campaign for a budget cut in excise taxes, which in Ireland are among the highest in Europe. The industry wants an across-the-board cut of 15 per cent, which seems unlikely as it would cost the exchequer €223 million. Try selling the cost of that policy to the public when there’s an acute homelessness crisis.
But Jones says a cut would help offset the effects of a reintroduction of duty free to the UK: “Duty free will also encourage more illicit trade.”
Aviation industry
Britain’s departure from the EU is, overall, likely to be huge negative for the aviation industry. The possible reintroduction of duty free will not be enough of a silver lining to make the Brexit more bearable. Analysts have not built any potential boon into the forecasts for listed airlines, such as Ryanair.
“It might help airlines at the margins,” said Stephen Furlong of Davy stockbrokers. “This is probably something that will be bigger for the ferry operators, where onboard spending and the historical capture of duty-free sales was more material to their performance.”
Gerard Moore, an analyst with Investec, says Irish Continental Group, the stock-market owner of Irish Ferries, generated as much as “roughly half” its net profits from onboard duty-free sales in the late 1990s. That old rythmical clinkety-clink of the duty-free shop rolling on the waves was the sound of philharmonic profitability for ICG and its boss, Eamonn Rothwell.
“It would be a big silver lining once again for ICG,” said Moore. “The company’s view now is, if duty free came back, they’d do a much better job of retailing it this time round. But it might not make up such a significant slice of profits.”
He agrees that airlines would have less to gain, but “if anyone can do it, Ryanair can do it”.
Datalex, the stock market-listed travel software company backed by Dermot Desmond, helps airlines design digital systems to boost their ancillary earnings from activities such as retail.
Ornagh Hoban, its chief marketing officer, said Ireland-UK airlines could “invent a digital marketplace for duty free” by pushing sales on passengers at the booking stage or on the airline’s website, allowing travellers to pick up their goods at the airport or on the aircraft.
“Duty free as an opportunity could evolve to a greater stage. It might be an even bigger opportunity than before,” she says.
The return of duty free is often conflated with customs and the issue of Ireland’s border with the six counties of Northern Ireland, which upon Brexit will become the EU’s only supra-national frontier with the UK.

But there is unlikely to be any duty free between the North and the republic. Duty-free sales happen in transit or at ports of exit. There are currently no direct flights between the Republic and the North. Duty free is unlikely to be much of a factor, unless someone opens a drive-through facility on the M1.
There has always been smuggling across the Border, however. Here’s a potential scenario to finish up that might help illustrate the unintended consequences of the Brexit vote, and the spaghetti bowl of problems facing the negotiators.
This summer, a new car ferry began operating across Carlingford Lough from Co Louth to Co Down. Its owners have said the reintroduction of duty free to UK travel could create an opportunity for the business.
It is only a 15-minute crossing, however. That wouldn’t leave much time to ditch the car on the ferry and leg it up to duty free for a carton of Marlboro and a few bottles of Campo Viejo.
But let’s assume duty free is allowed on the short crossing. What will there be to stop some enterprising soul spending all day, every day, crossing over and back from each side of the lough on the ferry, maxing out their duty free allowance on each journey, and “gifting” the haul to accomplices on either bank?